Wall Street started 2018 strong, buoyed by a growing economy and corporate profits. It isn’t ending that way.
U.S. stocks climbed to new highs early, shook off a sudden, steep drop by spring and rode a wave of tax cut-juiced corporate earnings growth to another all-time high by September. Then the jitters set in.
Investors grew worried that the testy U.S.-China trade dispute and higher interest rates would slow the economy, hurting corporate profits. A slowing U.S. housing market and forecasts of weaker global growth in 2019 stoked traders’ unease.
The market entered a volatile skid in October as traders sold technology companies and other growth sectors in favor of less-risky assets, such as government bonds.
The autumn sell-off knocked the benchmark S&P 500 index into a correction, or a drop of 10 percent from its all-time high, and on track for its worst year in a decade.
Housing Stalls
The U.S. housing market stalled in 2018 as years of prices climbing faster than incomes coupled with a steady rise in mortgage rates took their toll. The higher borrowing costs and prices have put homeownership out of reach for many would-be buyers. Sales of existing homes posted their biggest annual drop in four years in October. Economists are forecasting further weakness in housing next year and higher mortgage rates. The year to date median sale price of a single-family home in Connecticut was up 4 percent in October, according to analysis from The Warren Group, publisher of The Commercial Record.
Viva Volatility
The stock market’s gyrations grew more volatile in 2018 as investors faced uncertainty over trade and rising interest rates. The benchmark S&P 500 index slid into a “correction,” or a drop of 10 percent from its high, twice this year. Bond yields surged as investors sought less risky investments, though gold weakened after rallying early in the year.
“Diversify” is one of the bedrock tenets of investing, and it’s supposed to shine brightest when markets are turbulent. The hope is that if U.S. stocks are struggling, markets in other areas of the world will be doing better. Or bonds. Or gold. This year, though, nearly everything has been a loser.
Economic Headwinds
The pace of global economic growth will slow next year, the Organization for Economic Cooperation and Development said recently. Trade growth and investment have been slackening on the back of tariff hikes, the Paris-based economic think tank says. It warns world economic activity could be weaker in the years ahead if the U.S. and China impose further penalties on each other’s goods.
Trade Tremors
President Donald Trump said early this year that trade wars are good and “easy to win,” but worries about the effect of tariffs on international trade – and corporate profits – have weighed on stocks. Boeing’s stock became a proxy of sorts for investors as worries about trade waxed and waned. Boeing got more than half its revenue from abroad in the last year, including about 12 percent from China, according to FactSet.
Oil Slick
Falling oil prices used to be welcome news in the U.S., but that was before the oil boom of the last decade. A drop in oil can still mean lower gas prices for drivers. But this year’s 40 percent plunge from a four-year peak of about $76 a barrel in October is unequivocally bad news for the oil companies that have helped domestic production roughly double over the past seven years.
